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Myanmar open for US business, but is it a safe bet?

Analysts are warning US businesses to 'do their homework' on the crony-linked businesses and rights abuses that allegedly comprise Myanmar's resource industry.

Khin Maung Win/AP

In this photo taken in March, Derek Mitchell, then US special envoy to Myanmar, speaks during a press conference after meeting with opposition leader Aung San Suu Kyi at her residence in Yangon, Myanmar. Mitchell, the new US ambassador to Myanmar, arrived in the country yesterday, and a US business delegation is also expected to visit Myanmar this weekend.

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July 12, 2012

By Kate HodalContributor

Bangkok, Thailand

The Obama administration's decision to allow American businesses to invest in Myanmar after years of sanctions has prompted some regional analysts to warn potential investors of the country's high number of "unacceptable business partners," particularly in the oil and gas sector.

According to the new policy announced yesterday, US businesses will now have free rein to work within Myanmar's oil and gas industry, perhaps most significantly with the giant state-run Myanma Oil and Gas Enterprise (MOGE), the primary revenue source for the previous military government.

US President Obama called yesterday's announcement a first step in "allow[ing] US companies to responsibly do business in Burma [Myanmar]" and credited both Myanmar President Thein Sein and recently elected MP Aung San Suu Kyi for their combined work toward reform in the former military regime.

But analysts have warned of the myriad crony-linked businesses and rights abuses that allegedly comprise Myanmar's resource industry and warned US companies to "do their homework."

"We need to be very cautious in engaging with this business sector because there are many unacceptable business partners in Burma," says Wong Aung of the Thailand-based Shwe Gas Movement, an activist group that researches the social, economic, and environmental effects of Myanmar's oil and gas industry.

"Many businesses are still controlled by the Burmese military and [its] cronies, and have been for a decade, so it is difficult not to engage with them," says Wong Aung. “We need to pass legislative framework to ensure that they are transparent and accountable and that local people can be protected. [Until then] I do not think the US government can ensure that there are accountable and transparent businesses in [Thein Sein's] administration."

Last month, Ms. Aung San Suu Kyi warned international governments that MOGE "lack[ed] both transparency and accountability" and advised leaders to block all investments with the company until it met international standards – concerns which effectively delivered, until yesterday, what the US Chamber of Commerce called a "de facto investment ban.”

Most significant easing

Surprisingly, Aung San Suu Kyi today called Obama's announcement "nothing significant," but told reporters that the international community should pressure MOGE to be more transparent. She also stressed that the state-owned enterprise should follow International Monetary Fund codes of conduct.

But Human Rights Watch called the announcement an "undercut [to] Aung San Suu Kyi" and said the US had "caved to industry pressure." Rights groups also underlined continued government abuses – among them mass arrests, the recent killings of ethnic Rohingya in Arakan State, and the continued detention of political prisoners – as proof that yesterday's decision was a premature one.

Why the sudden move?

The green light is expected to qualm US concerns over losing potential business in the country to international competitors, as doing business with MOGE is seen as the only way to gain access to Myanmar's considerable stockpile of energy reserves. When economic sanctions were enacted in 2008, Chevron was the only US company in Myanmar to be exempted, according to the US government (PDF). The Yadana pipeline project, which is owned by French Total (of which Chevron has a 28 percent share), was at the time worth an estimated $500 million in revenue for the Myanmar government.

Now a two-day oil and gas summit is planned for September in the commercial capitol Rangoon (Yangon) – the second such summit this year. At least 40 new exploration and production licenses will be on offer by the Energy Ministry.

Under the new policy, American businesses investing more than $500,000 in Myanmar must disclose information on their activities in the country, among them their protocol on land acquisitions, the environment, human rights, and payments to Myanmar’s government. They are also required to inform the US State Department within 60 days of investing with MOGE. A ban still remains on doing business with companies owned by armed groups or the defense ministry.

Not so problematic?

Such regulations prove that the lifted sanctions may not be so problematic after all, says Aung Naing Oo of the Thailand-based think-tank Vahu Development Institute. "Myanmar needs all kinds of investment, which would help the country's No. 1 priority: economic progress," he said by e-mail from Rangoon. "I think the lifting of restrictions will help the reform process here and contribute to [a] better relationship between the two countries. It is also good for Myanmar in a sense that US companies are the best in terms of transparency and high standards."

Thein Sein told the Financial Times that a "second wave" of reforms was imminent and encouraged all governments to relinquish their sanctions against the country. His government aims to triple the size of its economy within the next five years, a goal Myanmar expert Sean Turnell of Australia's Macquarie University has called "ambitious to the point of utterly unachievable" – its 60 million citizens are among the poorest in Asia, with a per capita GDP of roughly $1,300 (for comparison, the CIA World Factbook reports that per capita GDP in Thailand in 2010 was $8,700).

While immediate benefit to the local community might be seen in smaller finance and investment sectors, among them tourism and commercial activity, Myanmar should be concerned about the prospect of larger oil and gas project abuses, says Wong Aung.

"In current development projects in ethnic areas, there is a total information black-out," he says. "We don't have any kind of disclosure policy on revenue, or information, or impact assessment, and that's not in line with any democratic principles of the needs of the people."